Should you buy gold? Investment professionals weigh in here…
Richard Tan, an investment professional, opines on the current gold situation: “People are confused as to why gold has fallen. Even investment professionals are perplexed.”
In explaining the drop in gold prices, he states: “There is higher degree of money printing in the world which has led to concern about the loss of faith in our paper currency, which is backed by the very same government that is printing money. In that respect, it is a bit counter intuitive why gold has crashed that much.”
So, is this the right time to stash away some gold? Tan shares: “It is hard to say if this is the right time to buy because it is like you are trying to catch a falling knife. Arguably, gold was already pricing in a great deal of pessimism on global growth and fear on inflation. But as we have seen, the world has not fallen apart and inflation is falling. Gold also does not give you any yield.”
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Let’s get clarity about buying gold
Attempting to get a clearer picture, we asked yet another investment professional, Ritesh Menon, some fundamental questions. Here are his answers:
The big question is — Is this the right time to buy gold?
Yes and no. It depends on why the investor wants to buy gold. If the investor is looking to trade the gold price, no it’s not the best time to buy. However if the investor is looking for a hedge against a systemic risk in the market, then it is an opportune time to buy some gold. And to keep buying small amounts of gold on a regular basis as insurance, NOT against inflation, but as insurance against a systemic collapse of the global monetary system.
How much should one purchase at what (recommended) price?
This is largely dependent on the investors capital size. There is no magic number for quantity, but for a long-term purchase, current prices are very attractive. And if gold should fall further, it would be even more attractive. Hence to avoid piling in all of one’s capital into it at one go, the purchase should be a tiered style purchase of a small quantity every month. So if the price drops further, the investor could capitalize on the lower prices to buy again, without exhausting his/her entire capital in one purchase.
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Watch this clip on the price of gold and why you should own physical gold
https://youtu.be/uxJL-pZ8S3s
Gold prices have rebounded slightly in the short term due to strong physical buying (bargain hunting)—but in the long term, will gold resume it’s downtrend?
Nothing goes up forever and nothing goes down forever. Gold could stay within a range or even go lower from here. It is all a factor of demand and supply. When the majority of the market has bought into it, and there is no one left to buy, prices give way and collapse, which results in a feedback system where people get jumpy and bail out of the market as prices start falling, and this selling pushes it further down.
As prices break certain levels, funds, trading desks etc., begin to exit their positions, which continues to feed into the fall in price. Once the majority of the crowd has exited the market and there is no one left selling large enough positions to push the price further down, it stabilizes and slowly picks up.
Since gold is a hedge against systemic risk and not inflation, the answer to your question is…NO. In the long-term, gold will be heading higher. Simply because the systemic risk in the global markets is getting worse. The systemic risk I’m talking about is Debt. Sovereign Debt globally is higher than it has ever been historically. And historically, no nation has ever paid back its debts. They have all defaulted on their debts.
So the shape of things to come further down the road will dictate how high gold will rise to. But you will not see gold spring back to life so quickly, it will happen when the first signs of collapse begin to emerge either out of Japan or Europe. And it is for this very reason why the European and Japanese governments are pumping money to prevent their economies from deteriorating.
